Stare Decisis Prevails: Marcellus Shale Gas Not Included as Part of Historical Coal Mineral Estate – Pa Supreme Court Upholds the Dunham Rule

Stare Decisis Prevails: Marcellus Shale Gas Not Included as Part of Historical Coal Mineral Estate – Pa Supreme Court Upholds the Dunham Rule

By: John R. Embick

Co-Chair, Environmental Law Section

May, 2013

Most of us are aware of the enormous energy development boom under way in Pennsylvania as a result of the technological advancements (e.g., hydro-fracking and horizontal drilling) allowing access to the Marcellus Shale deposits underlying extensive terrain in our Commonwealth.

Most of us are also aware that in Pennsylvania, the mineral estate (e.g., coal deposits beneath the surface) can be severed from the ownership of the surface estate.  In cases where the two estates have been severed, the surface owner has a right of “support”, so that the underground activity does not cause, for instance, subsidence of the ground surface.

Surface and mineral estates commonly were severed during historical coal mining booms  in our state in the 19th and 20th centuries (some people say the Marcellus Shale boom is, as Yogi Berra once said, “déjà vu all over again”).  This was usually accomplished by means of a deed granting ownership of the coal beneath a particular parcel to another party.

Interestingly, our Pennsylvania Supreme Court has held that a deed granting rights to coal, also included the rights to methane gas embedded in the coal deposits (see, United States Steel Corporation. v. Hoge, 468 A.2d 1380 (Pa. 1983) (“Hoge”).  Accordingly, depending on the terrain and underlying geology, the ownership of a tract of land could be divided between two or more entities.

Given the age of many deeds and the passage of time, it may be difficult for the surface owner to know who owns the subsurface rights.  This is often not a insignificant problem, as many properties in Pennsylvania are “severed” estates.

So, is Marcellus Shale gas part of the traditional coal mineral estate?  The answer is “no”.

The recent case of Butler, et al. v. Estate of Charles Powers, et al, No. 27 MAP 2012, ___A.3d ___  (Pa. April 24, 2013) provides this answer.

In the Butler case, the successors to owners of certain mineral rights sought a determination that the mineral rights included ownership of Marcellus Shale gas deposits beneath the surface.  Ownership was “cloudy” due to the existence of a deed, recorded in 1881, which reserved to the Char1es Powers Estate, the rights to "minerals and Petroleum Oils."

The trial court ruled in favor of the surface owners, finding that the 19th century Pennsylvania Supreme Court's ruling in Dunham & Shortt v. Kirkpatrick, 101 Pa. 36 (Pa. 1882), held that a reservation of "all minerals" does not in itself constitute a reservation of oil or natural gas, unless expressly stated.  This holding became known as the “Dunham Rule.”

Accordingly, the trial court ruled that the words “minerals and Petroleum Oils” in the Charles Powers Estate deed did not include the rights to Marcellus Shale gas.

On appeal, the Pennsylvania Superior Court caused much uncertainty (a ruling possibly involving property rights worth “Billions of Dollars”) by opining that the successors to the Charles Powers Estate deed might indeed be correct in their argument that Marcellus Shale was a mineral, and that the shale gas should be viewed like methane coal gas (and that Hoge might control). The Superior Court then reversed and remanded the case to the trial court, ordering additional testimony on the question.

The matter was then appealed to the Pennsylvania High Court.  In a decision dated April 24, 2013, the Pennsylvania Supreme Court reversed the Superior Court ruling, and held that the vintage Dunham Rule determined this dispute.  The Court held that the “all minerals” language in the Charles Powers Estate deed did not encompass natural gas.  This is true even though virtually every geologist would certainly refer to Marcellus Shale as “a mineral” and would describe the gas is being embedded in the shale (See, Hoge, above).  But, as often is the case, this is not the way the law developed in Pennsylvania. 

So, the take-away message here is that Stare Decisis is still an important doctrine, and that words matter.  In deeds conveying or reserving interests in mineral estates, scriveners need to describe the rights completely and as accurately as possible.